Update | Road Traffic: motor insurers vs credit hire companies

The skirmishes continue in the "secular war that has now been conducted for over 20 years between the motor insurance market and credit car hire companies who provide an innocent victim of a motor accident with a replacement vehicle whilst his is being repaired". So where do the battle lines now lie?

The underlying principle is that an owner of a chattel such as a motorcar damaged by the negligence of another is entitled to recover damages for the loss of use of that chattel even if the chattel is not a profit generating one. This is subject to normal principles of mitigation of loss whereby an innocent party cannot recover damages in respect of losses which could have been avoided by the taking of reasonable measures in mitigation of the loss. Thus an innocent motorist can recover damages for the loss of use of his damaged vehicle while the vehicle is being repaired. This loss can be recovered by way of special damages in respect of the cost of hire of a replacement so long as the claimant can establish a need for the vehicle over the hire period. Such a loss is not self-proving.

If the need for a vehicle is established then the claimant can recover the cost of hiring a replacement so long as the replacement cost is reasonable, having regard to the type of vehicle that was hired as a replacement compared to the damaged vehicle and the rate of hire.

If the claimant cannot afford to pay the hire costs upfront then the additional costs of a credit hire agreement are also recoverable. If the claimant was not so impecunious so as to justify a credit hire it would fall upon the defendant to prove that there was a difference between the base hire rate (formerly known as the "spot rate") for the model of vehicle actually hired and the credit hire rate.

In assessing the base hire rate an objective view should be formed as to what the rate would have been in the broad geographical area where the vehicle was hired. Judges faced with this task at first instance should not be hypnotized by the need to find an exact match for the make and model of a vehicle in question but the defendant should provide evidence of the base hire rate.

No proven need

In Singh v Yaqubi [2013] EWCA Civ 23 the claimant was a partner in a property firm, which owned seven prestige cars including a Rolls Royce which was damaged by the defendant's negligence. Instead of using one of the other six cars available to him the claimant hired alternative luxury vehicles at a total cost of over £99,000. There was no evidence as to the use to which the damaged Rolls Royce had been put before the accident.

The trial judge dismissed the hire claim in its entirety on the basis that the need for a replacement vehicle had not been proved. Introducing the judgment the trial judge commented, "This case raises the moral question which has occasioned me much anxious thought, whatever answer the law gives to the facts of this case which has occasioned further even more anxious thought, whether the ever increasing insurance premiums of the ordinary motorist, particularly one struggling to make ends meet and needing a modest car to go to work, should in some part be used so that the rich may continue at no expense to themselves to be filled with good things that they think they need."

This and other comments were seized upon by the claimant to suggest apparent bias on the part of the trial judge but the Court of Appeal rejected this argument because it was apparent from the remainder of the judgment that the trial judge '¨had plainly applied legal principles in coming to '¨his judgment.

The Court of Appeal affirmed the decision that there was a burden on the claimant to establish a need for a replacement vehicle, which on the evidence had not been discharged. The court further commented that very large vehicle hire claims should be scrutinized carefully by the courts and the trial judge was correct to require specific evidence as to the necessity of hiring a replacement vehicle.

The need to hire a replacement was again not established in Beechwood Birmingham v Hoyer Group [2011] EWCA Civ 647 where a substantial motor dealership supplied a vehicle to a manager for his personal use from the stock of vehicles held by the claimant company.

This particular vehicle was damaged by a negligent motorist but instead of providing the manager of the car dealership with another vehicle from the stock, the claimant chose to hire a replacement during the period over which the damaged car was being repaired.

Again the hire charges were found not to have been recoverable but instead general damages could be awarded for loss of use of the vehicle.

The trial judge had assessed these by '¨reference to the spot rate but the Court of Appeal ruled that because the claimant had been deprived of a capital asset (the vehicle) then the measure of the loss was interest on the capital value of the vehicle over the period of repair. Added to this was a sum in respect of the depreciation of the asset over the same period.

Ongoing war

In Burdis v Livsey [2002] EWCA Civ 510 among other matters, the Court of Appeal ruled that where a claimant has acted reasonably in entrusting her car to a repairer but due to factors beyond the claimant's control the repair takes longer than would be reasonably expected, the defendant still has to meet hire charges for a replacement over the extended period. This may have deterred some insurers from making an attack on the period of time over which a vehicle is hired but the recent ruling in Opoku v Tintas [2013] All E R (D) 81 (Jul) may fortify insurers in raising such arguments.

A vehicle was substantially damaged in July 2010. From an early stage it was clear that the defendant's insurers would contest liability. Instead of paying for the repair costs the claimant hired a vehicle under a credit hire agreement and racked up £40,000 in hire charges by April 2012.

The trial judge found that the defendant was entirely liable for the accident which had caused the substantial damage to the claimant's car and that being impecunious. The claimant was entitled to recover the additional charges of a credit hire arrangement but that the period of hire was not reasonable and that the claimant should have paid for the repairs and brought the period of hire to an end by March 2011. The Court of Appeal affirmed this decision.

The war continues but motor insurers may '¨wish to attack by questioning the need for a vehicle at all, putting the claimant as to proof of his inability to pay for hire upfront and taking issue with the length of the period of hire especially when liability is in dispute but is ultimately resolved in the claimant's favour. SJ